The problem was they had 2 competing goals when they started the UFC
1) Design a tournament they could win and dominate for a while. I'm not sure how long they thought Royce would win UFC tournaments and fights, but I'm pretty sure it was longer than his 13-month win streak (his fight after that was a draw with Ken Shamrock then he left).
2) Push the GJJ brand hard in VHS tapes, schools, merchandise, etc.
The problem is the second goal guaranteed a new group of guys learning their style. Some of these guys would clearly be better athletes than the Gracies and have experience in wrestling, kickboxing/boxing/karate/etc. This undermined their first goal. I don't think they counted on guys like Sakuraba, the Lion's Den and others adapting their own grappling and style to the point they didn't need to learn GJJ from the Gracies.